Prospects for US Investment in Nepal’s Priority Exports As Identified by NTIS 2010 Presentation by Chandra Ghimire Ministry of Commerce and Supplies Government of Nepal To the US Investors visiting Nepal 28th June, 2011, Kathmandu, Nepal

Contents Background (TIFA and Current Nepal) Status of US-Nepal trade and investment Priority export sectors in NTIS 2010 Prospects for US investment in priority export sectors Why to invest in Nepal’s priority export sectors?

Backdrop of TIFA Nepal-US historic trade and economic relations were formally established by signing a ‘Friendship and Commerce Agreement' on 25th April –A realization meanwhile grew to strengthen their trade and economic relations So, a Trade and Investment Framework Agreement (TIFA) was signed by the 2 countries on 15th April 2011 in Washington DC, USA. TIFA is expected to enhance trade, investment, and trade cooperation between the two countries and helps Nepal's economy to grow

Nepal's Trade with the US The US has remained one of the leading trading partners of Nepal since long. –The volume of export, however, declined from US$ 180 million in FY 1999/2000 to US$ 52 million in FY 2009/10. –Share of the US in Nepal’s export declined from 27.6% in FY 1999/2000 to 6.35 % in FY 2009/10. –Until 2001 export to the US moving upward but since 2002 downward largely due to MFA factor –Despite all Nepal had a trade surplus of US$ 24 million with the US in 2009/10. –Nepal’s major export items to the US include: textile, floor coverings, woven apparel, knit apparel, precious stones, and arts & antiques.

Status of Nepal's Trade against the US Fiscal YearTotal Exports of Nepal (US$ million) Exports to the US (US$ million) US share in Nepal’s total exports (%) 1999/ / / / / / / / / / /10 Increasing TrendDecreasing Trend %

Current Nepal The country recently came out of a decade long conflict and still in transition The infant republican democracy is due to deliver economic prosperity as 'peace dividend' to its people To let economic transformation, Trade Policy 2009 and Nepal Trade Integration Strategy 2010 are in-force The idea through the policy and the NTIS is to enrich its comparative advantages with competitive advantages which are potential in certain items

National trade strategy to populate its 'export basket' by enhancing 'supply side capacity' of the country, Prioritized strategy launched by PM on 24 June 2010; 19 goods & services identified as comparative advantageous; Plus 5 other goods and services suggested to roll down; 10 potential destination markets identified for each item; 3-5 year period for implementation; Trade Mainstreaming a high agenda, i.e. in TYP ( ), current FY's Budget and sectoral plans and policies National Institutional Mechanism in place, i.e. NSC, NIU, 5 TCs, DF and TTF in-plan By these all, 258 actions are in implementation so as to add competitive advantages with Nepal’s comparative advantages What is the NTIS?

NTIS Priority Export Sectors

USA India China India China India China India Markets of the US for 13; China for 7; and India for 7 goods and services

Nepal is the largest producer whereas not imported by the US so far. Also, the US has a 32% of market growth

The US is the 4th largest importing country constituting 11.5% of global imports. Also, India is potential.

The US market is one of the huge, i.e. 1/5 of the global imports.

The US is one competing country, thus other markets are potential.

Nepal begun exporting to the US and seems to have growing potentials.

So far only India exported to, thus huge potential exporting to the rest others

The US is the largest importing country in the world. Seems to be growing Nepal's exports to it.

The US is the largest market whereas only US$ imported from Nepal

India one of the potential market available for us. The US uses Nepal's paper as raw materials. Also, it imports finished products from Nepal.

The US is the largest market with 1/3 share of the global imports.

India is the fastest growing market as 51% growth rate for Nepal's export.

The US is the 2nd largest (next to Japan) with 17% of the global market share. Also, China is the fastest growing market, grown by 51%.

The US is the largest importing country (1/4 share of the global market)

China is the largest student sending country followed by India. Nepal is in between, thus US institutes can come over Nepal to cater their as well as Nepal's educational needs.

Neighboring China and India are the 2nd and 3 rd most attractive markets.

Why Invest in Nepal’s Priority Export Sector? 1. Product Factor: High socio-economic impacts Highly environment-friendly sectors, i.e. Pashmina, Cardamom, Ginger, Honey (as through Bee-keeping) etc High chance for value addition as minimal VA so far there High rate of return expected in the priority sectors, e.g. –hydropower sector (high demand but low supply at present). After fulfilling domestic demand, surplus hydroelectricity can be exported to neighboring Indian states that are facing power deficit.

Why Invest in Nepal’s Priority Export Sector? 2. Domestic Factor: Growing middle-class population with increasing purchasing power will demand more goods and services, e.g. agro and manufactured products as well as services like education, health, tourism, electricity and IT services. An increasing number of world-class educated youths, e.g. HRs available for joint venture companies. Rising growth of remittances is triggering demand. To cater that, new ventures can flourish. Business-friendly environment expected after the political parties iron out differences and write a new constitution. Nepal Government is committed to fulfill the needs of investors e.g. infrastructure, human resources, security, etc.

Why Invest in Nepal’s Priority Export Sector? 3. Giant Neighbor factor: 2 rapidly growing emerging economies are at Nepal's door step, i.e. China and India which are projected to be big economic power-houses in the days ahead. –China has already pushed back Japan. –These economies continue to grow and people have rising purchasing power, which offers huge markets for Nepal based companies. –Nepal can sale transit facilities to India and China. –Geographic and cultural proximity to China and India will lower transportation and transaction cost, thus Nepal is a perfect choice. As wages in China and India continue to increase and their middle class population is on rise, Nepal is a best place to cater their demand.

Why Invest in Nepal’s Priority Export Sector? 4. Other Factors: Duty free (0-tariff) market access available in India, China and many developed countries, e.g. EBA in EC and so on USA is the all time most potential export destination for most of the Nepal's priority export sectors Thus, please grab the opportunity Finally, I would say just 3 words just like President Barack Obama so said 1 day before his election campaign 'tomorrow', 'tomorrow' and 'tomorrow'......'investment’, ‘investment' and ‘investment' in Nepal

Thank you……….……. …..for your kind attention!